NEW LAW WOULD AUTHORIZE GOVERNMENT CONTROL OF 4 MILLION SMALL BUSINESSES

March 13, 2009

The Employee Free Choice Act (EFCA, H.R. 1409, S. 560) does more than take away secret ballot elections: It empowers the federal government to impose contracts on newly organized companies. The government would set wages, benefits, work assignments, promotion procedures, and any major changes to business operations. Because EFCA has no meaningful small businesses exemption, it would authorize federal control of up to 4 million small businesses employing 39 million Americans. Consequently, bureaucrats with no management experience would effectively control these small businesses, says James Sherk, the Bradley Fellow in Labor Policy at the Heritage Foundation.

The misnamed Employee Free Choice Act affects both large and small businesses, says Sherk:

The National Labor Relations Act (NLRA) has a small business exception, however, this exemption has not been updated for inflation since 1959.

It covers all non-retail businesses with gross revenues of $50,000 a year and retail businesses with gross revenues over $500,000 a year.

To put those figures into perspective, the average private-sector worker costs his or her employer $56,000 a year in wages and benefits--before the cost of any capital needed to do the job.

A business with one worker earning average pay would not qualify, consequently, the law has no meaningful small businesses exemption.

The Heritage Foundation used Census Bureau data to calculate how many small businesses EFCA would affect: The act covers 4,180,000 businesses employing 38,934,000 workers.

EFCA takes away these workers' right to a secret ballot vote on joining a union -- a consequence that has attracted considerable controversy, says Sherk. However, the bill has a second provision of equal if not greater significance to small businesses that has attracted much less attention: EFCA replaces collective bargaining with government-imposed contracts for newly organized companies. In practice:

EFCA will effectively eliminate collective bargaining for initial contracts because the system provides no reason for unions not to hold out for a government contract.

Unions would have strong incentives to make extreme demands and hope the FMCS appointed arbitrator splits the difference between these demands and management's position.

Granting such a radical amount of power to the FMCS puts control of workplaces in the hands of unaccountable government bureaucrats, says Sherk.

Source: James Sherk, "EFCA Authorizes Government Control of 4 Million Small Businesses," Heritage Foundation, WebMemo #2341, March 12, 2009.